Photo by StellrWeb on Unsplash

FINANCIAL PLANNING

Financial Success for 20 and 30 Somethings

A beginner’s guide

Starting out on the right financial foot is crucial for long-term financial success. Here are some basic tips and recommendations to help you get started:

1. Build an Emergency Fund. Having a safety net in case of unexpected events is crucial. Aim to build an emergency fund that covers 3-months of your living expenses. You don’t have to do this all at once, start by adding small amounts each month until you reach your target. Consider opening a savings account with a high-yield bank such as Ally Bank (3.4% APY) or Wealthfront (4.05% APY) with no monthly fees and low minimum deposit requirements.
2. Open a Roth IRA: A Roth IRA is a retirement savings account that allows you to pay taxes on the money going into the account now, so you won’t have to pay taxes on the interest you’ve earned when you withdraw the money in retirement. Consider using Wealthfront, which has low commission rates and a user-friendly platform to help you get started. The annual Roth IRA contribution limit is $6,500 for 2023.
3. Utilize your 401(k). If your employer offers a 401(k), make sure to take advantage of it. In 2023, you can contribute up to $22,500 per year to a 401(k). Many companies offer to match your contributions up to a certain percentage of your salary, which is essentially free money for your future.
4. Save for Future Purchases. Set aside an additional 10–20% of your monthly income into a separate savings account for future expenses such as a new car, a down payment on a house, a big trip, or a wedding.
5. Reach Savings Milestones. Here is a savings goal snapshot based on your income and age:

• By Age 25: Aim to have half of your yearly salary saved (e.g. $35k to $50k if you make $70k to $100k per year)
• By Age 30: Aim to have the equivalent of your yearly salary saved (e.g. $80k to $140k if you make $70k to $100k per year)
• By Age 35: Aim to have twice your annual salary saved (e.g. $160k to $250k if you make $70k to $100k per year)

6. Invest Wisely. Avoid investing in individual stocks as the chances of finding the next Amazon are low. Instead, consider investing in mutual funds, which allow you to invest in hundreds of stocks for long-term returns. Vanguard is a great option for mutual funds with a long-term average return of 8% after accounting for inflation.

7. Use an FSA (Flexible Savings Account). If your company offers an FSA, use it to pay for medical expenses, therapy, prescriptions, dental visits, etc.

8. Avoid High-Interest Credit Card Debt. Credit card interest rates can be as high as 20% or more. Make sure to pay off your credit card bill in full every month to avoid interest charges.

Mid-30s vs. Mid-20s Millennial Men, Part 2